Got a taste for fast food? A drive to get into auto maintenance,
repairs or rentals? Whatever your entrepreneurial passion, if
you're ready to enter the world of franchising but lack the
price of admission, your timing couldn't be better.
Availability of funds is at a recent high, and interest rates are
down.

Where can you find all that available money? Everywhere. From
banks and brokers to friends and finance companies--the sources are
endless. But don't rush to your neighborhood bank just yet.
There's work to be done first--and you must finish
reading this article. But where do you start once you're
finished?

"Investigate SBA loans," advises Bob Neagle, general
manager of franchise finance at Newcourt/AT&T Capital, a
finance company based in Parsippany, New Jersey. "[Lenders]
are more interested in working with a first-time operator,"
Neagle says, "when the loan is guaranteed by the Small
Business Administration, which has terms and conditions free of
conventional lending constraints."

The SBA's Michael Stamler agrees, pointing to the
administration's "reduced equity injection, reduced
collateral requirements and longer maturities, which decrease
borrowers' monthly payments and thereby increase cash
flow." The SBA, which guarantees repayment of 80 percent of
loans provided to small-business borrowers by private lenders,
approves a very high percentage of applications because most have
been screened and approved by lenders, Stamler notes.

"But don't come to us for a loan," implores
Stamler. "Go to SBA-certified commercial lenders--banks and
loan companies." To find a certified lender, call your local
SBA office or visit the SBA's Web site (http://www.sba.gov).

Like most lenders, the SBA usually requires loan applicants to
submit a business plan. "We want to see if the idea works, if
the proposal has been thought through, and if the borrower has the
necessary experience to [run] the business successfully and repay
the loan," Stamler adds. "We look primarily at projected
cash flow; banks look primarily at collateral."

So if you're going to the bank for money, amass as much
personal funding as possible first, urges business school professor
Jerry White. "Ask friends, relatives, business associates and
the franchisor for money. Do anything that will help guarantee the
bank that the loan will be repaid [even if] the business
fails."

White, director of the Carruth Institute at the Cox School of
Owner-Managed Business at Southern Methodist University in Dallas,
suggests, "There's no need to borrow the entire sum from a
bank. Put together a package with help from family, friends and
savings. Short of raising enough funds, you can guarantee the loan
by pledging personal assets, such as real estate holdings, or have
someone cosign the note."

Paul DeCeglie, author of the monthly column "Money
Matters" in Entrepreneur's Business Start-Ups, is a
former staff reporter for the Journal of Commerce and
American Banker. He can be contacted at MrWritePDC@aol.com

Collective Effort

Teresa and David Pouppirt (29 and 32, respectively) of Gresham,
Oregon, followed that advice after their loan application was
rejected by numerous banks, among them Key Bank. "We filed for
bankruptcy against Key Bank nearly 10 years ago," Teresa
confesses, pointing to the likely reason for the couple's loan
application rejection.

To assemble the $115,000 needed to purchase a Precision Tune
Auto Care franchise, the couple called in all their resources.
"[We] borrowed $25,000 from David's aunt, withdrew $10,000
from his pension fund, took a $15,000 second mortgage on our home,
and borrowed the balance from Phoenix Leasing," says Teresa.
She has only one tip for loan applicants: "After filing
bankruptcy against a bank, don't apply there for a
loan."

Jay Froman, owner of Business Capital Resources (BCR) in Clovis,
California, has another tip, which was reiterated by lender after
lender: Do your homework.

"If you're committing the major portion of your assets
to a business, you need to fully understand what that business is
about," says Froman. "Research the opportunity and the
market. Ask pointed questions of the franchisor. Study the UFOC
[Uniform Franchise Offering Circular]. Call other franchisees to
learn about their experiences, their actual start-up costs,
operating costs, income, and the support they're getting from
the franchisor. Then call a lender or a broker, explain your
situation and ask for guidance." (For more on researching a
franchise, see "Now You're Cooking".)

Using a broker to arrange your loan, as Froman did for the
Pouppirts, is one of several recommendations Loretta Dodson, senior
area development specialist at Precision Tune headquarters in
Leesburg, Virginia, makes to franchisees. "Brokers can steer
new franchisees in the right direction for their situation,
recommending an SBA loan when it's fitting or an equipment
lease if the buyer has funds to cover everything else," Dodson
notes. "Not only do brokers do most of the work for borrowers,
but they also [facilitate] the process for [franchisors] because
they're familiar with our systems."

Getting Together

One recent trend in franchise financing has franchisors entering
into nonexclusive partnerships or alliances with finance companies.
When Jana Sappenfield applied to open a Dallas franchise of
Primrose School Franchise Co., a child-care chain based in Atlanta,
she was given a list of lending sources, including banks and loan
companies.

In search of $1.6 million of the $1.9 million required for her
first franchise, Sappenfield checked out a local bank in Dallas as
well as Newcourt/AT&T Capital, two of the lenders listed.
"They offered the same interest rate," says Sappenfield,
"but I felt I could work with the Newcourt/AT&T people a
lot more easily. Our personalities matched. They offered more
information, guidance and personal attention. They were also
familiar with Primrose, so no time was wasted researching or
approving the franchisor." At the end of 1998, Sappenfield
purchased her second Primrose School franchise (this one in Tampa,
Florida), and her loan application sailed through the
Newcourt/AT&T approval process.

Like Newcourt/AT&T, which is an SBA-certified lender that
has preferred relationships with about 25 franchise concepts,
companies such as The Money Store, Commercial Capital Corp.,
International Franchise Capital, Business Capital Resources and
Phoenix Financial are shoring up preferred-lender status with
franchises nationwide.

"We're comfortable with the franchises we work with
regularly; we know the leadership and have an understanding of
their selection criteria," explains Gary Weiss, vice president
of franchise finance at Newcourt/AT&T. "Consequently, when
an approved loan application comes from a franchisee with a
preferred system, we are certain the candidate is qualified. Of
course, we still do our due diligence."

Shop 'Til You Drop

Before settling on the franchisor's recommended financing
sources, however, check out all your options. "Shop, shop,
shop," urges Howard Bassuk, president of the Franchise
Network. "There are many choices in lenders, just as there are
many choices in franchises. You should devote as much time and
effort to finding the right loan as you devoted to finding the
right franchise."

Bassuk, whose worldwide chain of franchise brokerage offices is
based in San Diego, suggests first asking the franchisor for
financial support. "[Then] call or visit banks, loan
companies, leasing companies, brokers, local business development
groups, friends, relatives, pension plans, credit unions, mutual
funds--anyone who may be in a position to lend money," he
advises.

While some major banks may not make franchise loans,
"Virtually any bank that makes SBA loans will certainly
consider making a franchise loan," says Bassuk. "After
all, banks are in the business of making loans, and franchise loans
are particularly attractive because the lender can track the
experiences of other franchises in the system, evaluate the success
of the concept and project future income."

Wherever you seek funding, remember that money is a commodity.
Shop for it wisely. Negotiate. Make the best deal. Both you and
your lender have something to gain from this transaction.
"Don't walk into a bank or finance office with your hat in
your hand," Bassuk counsels. "They aren't doing you
any favors. They must lend money to stay in business, so present
them with an opportunity to make a good loan, and they'll lend
it to you."

Give 'Em What They Want

Even before you apply for a loan, devise a plan for repaying it.
Getting the money may be your primary goal, but getting it back is
the most important thing to the lender. So as you prepare that
business plan, research your market, and study each page of the
UFOC, keep in mind that your primary objective is to convince the
lender you'll repay the loan.

What convinces lenders?

"Information," says Michael Duckham, account manager
of Sacramento-based The Money Store's franchise division.
"The more information the borrower provides us, the more
likely we are to approve the loan."

Duckham wants to see a well-prepared business plan, tax returns
for the last three years, a resume, site information, build-out
estimates from local contractors, a demographic analysis, actual
and projected income of franchisees, and a variety of other
information from the borrower, the franchisor and the local chamber
of commerce. Whew.

If you're unfamiliar with writing a business plan, seek
professional guidance or check out business plan preparation
software such as Business Plan Pro ($165 from Palo Alto Software,
800-229-7526), or BizPlanBuilder Interactive ($149 from Jian,
800-896-5426).

Steak Your Claim

The odds weren't in Robbie and Paula Vallejos' favor.
But after months of diligence, the couple secured a $165,000 bank
loan to buy a Steak-Out franchise.

After 13 years with the U.S. Marine Corps, Robbie, 38, moved
with his wife, Paula, 37, back to her native South Carolina with
the intention of buying a franchise.

To prepare himself, Robbie worked in a relative's Steak-Out
restaurant in Montgomery, Alabama, for three months. But
Atlanta-based Steak-Out Franchising Inc. was reluctant to award a
franchise to a couple who had no business background and probably
couldn't raise the $217,000 in start-up costs.

But the Vallejoses did their homework. "Paula and I
researched the Rock Hill area, collecting information on the local
economy, demographics, population growth and industry," Robbie
recalls. "We got a lot of direction and help with our business
plan from the chamber of commerce and the SBA."

By the end of 1995, the couple had raised $52,000, and asked the
Bank of York for the balance. "We presented an impressive
proposal supported with lots of documentation from Steak-Out,"
says Robbie. Three months later, they got the money, and by
December of 1996, they were open for business.

Steak-Out was so impressed, in fact, the company drafted Robbie
to help other franchisees prepare their loan packages.

Now, two years later, the Vallejoses' full-meal delivery
franchise is grossing $11,500 a week. Guess they were a good risk
after all.